Fintechs and the National Pension System: Financial Technology

Ever since fintechs arrived on the scene, they’ve been changing the way things work across industries. They’ve helped the finance industry grow tremendously.

And now, the Pension Fund Regulatory and Development Authority (PFRDA) is looking at using the help of fintechs to improve the National Pension System (NPS).

Why fintech?

Fintechs have changed the way the financial sector works, improving it many times over. Other industries and sectors have vastly benefited from this as well.

They help improve processes and systems by constantly innovating and finding new ways of doing things.

The PFRDA is of the opinion that fintechs can help improve the way NPS currently functions as well. Looking to integrate the digital innovation that fintech applications bring to the table, a group has been formed to help with this.

How fintech applications can help NPS

This integration should allow the National Pension System to help customers get on board faster. Robotic services that offer investment advice can help offer valuable information on fund managers. Fintech applications can also help maintain records while working on subscriber requests at the same time.

The Pension Fund Regulatory and Development Authority has formed a group to study the ways in which fintech can be used through a sandbox method.

The committee formed for this purpose has already submitted its report to the PFRDA. The regulatory body is now in the process of seeking suggestions from its stakeholders.

What is a fintech sandbox?

A fintech sandbox is essentially an operational structure put in place by a regulator in the financial sector. The regulator then oversees innovation testing done on a small scale and in a controlled atmosphere.

Such an environment helps develop rules and guidelines for upcoming technologies. This helps promote healthy innovation that will benefit the customers.

The main role that fintechs will play is that of implementing technology based on the business model.

How NPS can be improved using the help of fintech

The National Pension Scheme stands to benefit a lot by implementing fintech practices. The report submitted by the committee suggests that regulations will have to evolve to accommodate the innovations brought in by fintech applications.

It has reported that fintech can help make the onboarding process a lot simpler for customers and for NPS. This would bring about a paperless system for generation of pension accounts. It would also simplify the compliance to KYC requirements, the prevention of money laundering, and due diligence.

Fintech applications can also help make the flow of transactions a lot smoother. Contributions from customers can be channeled through the banking sector and into the pension funds easily.

Subsequent deposits and investments from customers and credit into the pension accounts can also be done in real time.

Artificial intelligence (AI) can enable robotic advisors to help customers make wise investment choices. AI can assess the risk appetite and investment preferences of each customer and help them choose the right fund manager.

Another area in which fintech can be of immense help is in the department of record keeping. It can instantly record any change made in customer data. Using blockchain technology, it can keep a track of payment contributions made.

This technology can also tend to customer grievances and offer immediate solutions.

All said and done, fintech can be used in multiple ways to boost the way NPS functions. Bankbazaar provides all the information about PFRDA, Interest rates and Tax benefits for NPS.

Fintech offers customers maximum security

With a view of offering its customers optimum security, PFRDA has announced that it will use only those fintech applications that come under its purview.

It will ensure that no inter-regulatory applications will be used. Even if such applications are used, it will ensure that all the necessary permissions and regulations are already in place before they are used.

The committee’s report says that regulators are interested in promoting creative ideas to offer improved services to the customers. But at the same time, they will also have to ensure that the customers’ security is not compromised.

The committee wants to use the enormous potential that fintech applications have to make things better for customers. But this betterment should not come at the cost of having loopholes in customer protection.

The main aim of applying fintech practices in NPS is to make sure that customers are benefited while lowering operational costs and providing higher transparency in the system.

That said, the committee strongly recommends that the guidelines and regulations being formulated need to be adaptive and flexible. This will help mold the regulations to monitor and regulate the innovations coming up in the future.

Adaptive regulations will also help manage unforeseen developments in technology and facilitate information exchange between regulators. It will also help regulate new entrants in this sector.

Fintech is a boon to the pension industry

From all that we’ve seen above, it is quite evident that fintech applications are a definite boon to the pension industry.

Fintech companies are helping improve the operational efficiency of various pension plans. They help to do this by assessing risk factors, by automating the investment processes, and by ensuring the compliance to regulations.

The main objective of using fintech in NPS is to promote and encourage innovation. Along with this, fintech also helps to reduce operational costs, make processes more efficient, and protect and improve the interests of the customers.

In addition to all this, fintech also helps mitigate any risks that the customers have to face due to innovation in this field. As such, the customer is assured complete financial protection.

All said and done, it is quite evident that fintech can make serious inroads into the National Pension Scheme and help improve the way it functions. This should make it easier for customers to interact with the system. Offering investment advisory services and other customer-centric services can only help attract more subscribers and hence, more investment.

Applying fintech applications in NPS seems like a good move. We can only wait and see how the integration is done and how it helps the government help customers.